Fizzling DSL Feeds Cable Broadband

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The curse of copper
continues for the nation’s
two biggest telcos.

Over the past five
quarters, AT&T and Verizon
have lost customers on
older digital-subscriberline
connections about as quickly as they’ve added more
profitable fiber-based broadband subscribers.
For AT&T, the DSL problem worsened in the second
quarter of 2012: The telco dropped 649,000 legacy DSL
broadband subs, while it added 553,000 U-verse highspeed
Internet subscribers.

“One of AT&T’s most important growth supports in
the wireline business has now gone into reverse,” Sanford
Bernstein senior analyst Craig Moffett said in a research

For its part, Verizon lost 132,000 DSL customers, for a
net gain of just 2,000 total wireline broadband customers
(with 134,000 net adds on the FiOS side).

AT&T and Verizon are seeing a significant portion of
their legacy DSL subs upgrade to advanced services, accounting
for at least 75% of subscriber growth for their
respective U-verse and FiOS Internet services, according
to Teresa Mastrangelo, founder and principal analyst of
research firm Broadbandtrends.

However, “this also means there is very little new subscriber
growth, and there is also a portion of subs that are
… most likely going to cable for their broadband,” Mastrangelo

Both AT&T and Verizon tout revenue gains from advanced
services as turning around their residential fixedline
businesses. “U-verse continues to power wireline
consumer, transforming the business with solid growth
and record revenues,” AT&T chief financial officer John
Stephens said on the earnings call.

Still, with the ongoing DSL losses, MSOs are expected
to post broadband gains when they report Q2 earnings
(see Finance).

As AT&T and Verizon have struggled on the wireline
broadband side, cable operators have continued to boost
speeds without raising prices.

Comcast last week announced it will double the
speeds for current customers of its 25 and 50 Megabitper-
second services, to 50 and 105 Mbps, respectively, for
no additional cost. The MSO — looking to grab broadband
bragging rights from Verizon FiOS — also launched
a 305-Mbps downstream service in markets in the Northeast,
priced at a hefty $300 per month.

Verizon has made a strategic choice to deemphasize
DSL across its network by not offering it in FiOS markets
and eliminating standalone DSL services.

Consumer advocates charge that
Verizon has another big incentive to
abandon DSL: Verizon Wireless’ comarketing
deals with Comcast, Time
Warner Cable, Cox Communications
and Bright House Networks. Critics
have urged regulators to nix those
agreements, arguing they will reduce
competition and result in higher

The issue for AT&T is that U-verse
is not ubiquitously available across its
footprint, Mastrangelo said: “They
have made little to no investments
in the legacy plant and it is definitely
starting to show.”


The two big telcos have
struggled to migrate customers
from older DSL to fiber-based
broadband — to the benefit of
cable operators.